Retail shares down amid sales slump
Thursday 31 March 2011
Retailers came under mounting share pressure today as further gloomy sales figures confirmed dire conditions on Britain's high street.
Mothercare and Laura Ashley became the latest to report sales falls, prompting a second day of pain for retail shares after yesterday's profit warning from PC World and Currys parent Dixons Retail.
Babycare chain Mothercare slumped as much as 10% after it said UK sales remained in the red - down 2.4% in its final quarter - and revealed profit margins were taking a bigger-than-expected hit as difficult conditions force it to discount stock.
Clothing and furnishings firm Laura Ashley was also deep in the red, with shares down 13% as news of a 4.2% drop in recent UK like-for-like sales overshadowed a near-doubling in full-year profits.
The flurry of grim updates from retailers has sparked fears for the sector over the year ahead as consumers rein in spending in the face of Government cuts, tax hikes and soaring inflation.
Official figures earlier this week showed household disposable income fell for the first time in 30 years at the end of 2010 after wages failed to keep pace with inflation.
A survey today from GfK NOP also revealed consumer confidence is at levels normally associated with a recession.
The study showed the biggest monthly fall since the 1992 recession in January and confidence has remained in the doldrums for the past two months.
Dixons shares fell another 7% after plunging 18% yesterday following news that sales declines in the UK and Ireland worsened to 11% since Christmas.
The rout impacted players across the industry, with specialist retailers and department stores impacted.
Next and Marks & Spencer suffered more declines in the FTSE 100 Index, while elsewhere Debenhams fell 4%, Sportsworld parent Sports Direct International dropped 3% and WH Smith and car parts and bicycle chain Halfords both dropped 2%.
Howard Archer, chief economist at IHS Global Insight, said: "Consumer confidence remains extremely weak, thereby maintaining concern that consumers will be very cautious in their spending over the coming months in the face of serious headwinds."
He added: "Furthermore, the very real likelihood that the Bank of England will start to raise interest rates sooner rather than later is not good news for consumer spending prospects."
Mothercare sparked a series of downgrades for its profits this year and next after today's update.
It already warned earlier this year that annual profits would be lower than the City's expectations of £41 million as it was forced to put on post-Christmas sales to clear stock.
But forecasts were trimmed further after more sales falls and confirmation that profit margins for the past year were down 2.5% against the 2% fall previously expected.
Laura Ashley reported a 91% leap in underlying profits for the year to January 29, but this was eclipsed by the 4.2% UK retail sales drop in the eight weeks since its year-end.
"There has been a decline in performance since the beginning of February, which we attribute to a general weakening in the consumer economy," the group said.
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